Labour’s Charles Chauvel is making a fuss about loan sharks charging interest at “only” 9% per week. When compounded this burgeons to around 2000% a year. He wants a crackdown, saying NZ is about the only country in the world without laws to deal with the usurers, and has prepared a Member’s Bill to regulate them (a bit rich after Labour’s nine years in office, but better late than never). The PM gave him a pretext for raising the matter at Parliamentary question time, too, by expressing concerns at interest rates of 21 - 22% and saying they were very high.

Rates Low Now. Finance Minister Bill English rejoined there had been an inquiry into loan sharks under the previous Govt, and “we are still trying to find out whether anything was done as a result of it.” He then spotlighted floating mortgage rates: the average is 6.41%, down 4.5% from June last year - thus interest rates then were much higher for householders then they are now. Political points on this to the Govt. But how long will rates stay there? They are under pressure because the banks must compete for scarce money globally and for deposits in this country.
Tough Borrowing Market. Today’s Budget may well apply more pressure, the weight of it depending on the size of the deficit and (more important) the nature of the debt programme. The Govt can borrow overseas, borrow at home, or maybe engage in some “quantitative easing” (printing money, in short, because it would expand the central bank’s balance sheet and the monetary base). Whatever the mix, the Govt must borrow in an environment where Govts overseas are running huge deficits. There’s a worry global investors might decide public debt should be repriced. Upwards. Competition for money is fierce at home, too: the banks are vying with each other to build up domestic liabilities and competing with corporate bond issues and finance companies offering high yields in Govt-guaranteed schemes.

Ratings Decision. More ominously, the credit rating agencies will be poring through the Budget details. Standard & Poor’s (whose bosses have been treated to a Budget briefing) has warned it might tick down NZ’s credit rating if our debt is not brought under control. This would be to tick up borrowing costs all around: based on Ireland’s experience, says the Treasury, a rating downgrade would add $600m a year to our interest bill. Here’s hoping they tai-ho.

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